Commercial Insurance Premiums Indicate Market Momentum
February 2007
Property insurance premiums spike in fourth
quarter 2006, while directors and officers and workers compensation premiums
drop significantly.
by Advisen Ltd.
In the fourth quarter of 2006, commercial insurance premiums reflected some
of the year's most dramatic rate changes, according to the RIMS Benchmark Survey™.
As predicted by Advisen analysts, the soft market continues to gain momentum
due to a relatively stable year free of major catastrophes. The RIMS Benchmark
Survey™ is the industry's leading comprehensive survey of current policy renewal
prices as reported by corporate risk managers.
In the fourth quarter of 2006, directors and officers (D&O) and workers compensation
reported the largest decreases in premium rates with 5.1 percent and 7.4 percent,
respectively. D&O continues to be a very competitive line of business with rate
decreases further stimulated by a sharp drop in the number of securities class
action suits filed in 2006, as tracked by Advisen—112 in 2006 as compared to
186 suits filed in 2005. Competition has been spurred in the workers compensation
line of business due to reform measures passed in several large states.
Property insurance was once again the only line of business that increased
in the fourth quarter by 6.6 percent. This sharp increase was caused by the
continuing legacy of the 2005 hurricane season. Rate increases continue to affect
not only property owners with coastal exposures in the Southeast, but also companies
with windstorm exposures in Mid-Atlantic and Northeastern states, and earthquake
exposures in California.
"Risk managers have benefited from lower premiums in most lines of business,
but continue to be challenged by skyrocketing property catastrophe premiums,"
said Joseph Restoule, RIMS secretary and member of the board of directors. "However,
we've now gone a full renewal cycle since the catastrophes experienced in 2005.
There are reasons to be optimistic that the market for catastrophe coverage
will stabilize and even improve in 2007."
Aggregate policyholders' surplus, the measure of insurance capacity, increased
sharply in 2006 as a result of strong pricing and few catastrophe losses. According
to a report released by A.M. Best Co. in December, property and casualty policyholders'
surplus grew 8.7 percent to $477.3 billion.
"Greater capacity resulting from a very profitable 2006 means that underwriters
are going to be under pressure to slash rates further in 2007," said David Bradford,
editor-in-chief, Advisen, "Even risk managers with coastal property exposures
should see improvements this year."
General liability premiums continued to decrease slightly in the fourth quarter
by 2.6 percent. Changes in general liability reported in 2006 show premiums
for the year were relatively unchanged.
About The RIMS Benchmark SurveyTM
The RIMS Benchmark Survey™ is produced by Advisen, Ltd., which collects and
analyzes the data and provides the technology infrastructure for the survey's
online services. Advisen introduced the "Broker Authorization Letter" that enables
Risk Managers and buyers of insurance to contribute to the RIMS Benchmark Survey™
by designating their broker to provide the client's program details. The letter
is available at www.advisen.com/ or by calling 800-655-6590. Risk management professionals
can also contribute by e-mailing current and prior year policy schedules to Benchmark@RIMS.org or by faxing to 212-655-7453.
Risk managers who contribute data to the survey can benchmark the structure
of their commercial insurance programs, retained loss costs, exposure demographics
and Total Cost of Risk (TCOR) against a highly-relevant group of peer companies.
Additionally, survey respondents can use software personalized and configured
for their needs to view detailed schedules of insurance, programs for current
and past years and full-color program tower charts. Both benchmark charts and
program charts download into any presentation for senior management. The results
of the RIMS Benchmark Survey™ are available online or in an annually-published
book. Visit www.advisen.com/ for details.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author's employer or IRMI. Expert Commentary articles
and other IRMI Online content do not purport to provide legal, accounting, or other
professional advice or opinion. If such advice is needed, consult with your attorney,
accountant, or other qualified adviser.